Turning 60 soon? Here are 3 smart money moves that will improve life in retirement

view original post

Show Caption
Hide Caption

Allworth Advice: Running out of money in retirement

Amy Wagner with Allworth Financial discusses running out of money during retirement.

Allworth Financial, Cincinnati Enquirer

Those nearing retirement have many factors to consider, but by making a few financial decisions early on, you can protect yourself from the risks that lie ahead. Begin thinking about long-term care, medical insurance, and retirement spending before saying goodbye to your working years.

According to the U.S. Department of Health and Human Services, 70% of Americans will need some form of long-term care in retirement, with a median annual cost north of $100,000. The big question at this moment is not whether a retiree will experience a long-term care need, but how they will afford the care they need. 

Long-term care insurance

Long-term care insurance can help supplement part or all of the long-term care expenses incurred by Americans today. Typically, long-term care insurance offers a daily coverage amount up to a maximum annual coverage. This daily benefit can cover care in a skilled nursing facility, which may otherwise be too expensive.

For Americans looking to bridge the gap between their savings and long-term care needs, long-term care insurance is an attractive option, but comes at a price. Because risk pools are now expecting a high percentage of Americans to have long-term care needs, the price of long-term care insurance can be prohibitively expensive. According to AARP, however, healthy Americans aged 60-65 are at the optimal age to shop for long-term care insurance, due to the combination of affordable monthly premiums and total premium savings over the life of the insured. Buying this coverage today can help cover the unexpected costs of a long-term care stay.

Nursing homes and COVID:  This chain stood out for nationally high death rates as pandemic peaked

Make a healthcare plan

When it comes to planning for retirement, one of the greatest obstacles involves health insurance coverage. For most Americans, health insurance in retirement involves qualifying for Medicare and purchasing a Medicare supplement plan. However, Medicare eligibility begins at age 65, so navigating the years between retirement and Medicare eligibility is a major consideration.

Before leaving your employer, understand your employee benefits. Few benefit plans allow employees to continue group medical coverage after they stop working. COBRA coverage, however, may provide a buffer by offering at least 18 months of continued coverage under an employer’s plan. It should be noted that continued coverage under COBRA is often more expensive to an employee than their employer plan, since employers often subsidize the cost.

Retirement:  Be prepared to spend over $300,000 on health care

Another option for bridging the gap between retirement and age 65 is by purchasing insurance on the open market. Purchasing this coverage is often inadvisable, as premiums are likely to be high, especially for someone over the age of 60. Those with pre-existing conditions may be denied outright.

When considering health insurance in retirement, bridging the gap between retirement and Medicare eligibility is often the biggest consideration. Understanding your benefits, as well as those afforded to you by COBRA, is an important way to protect against unexpected health expenses in retirement.

Employ a bucket strategy

As you near retirement, the ebbs and flows of the markets feel less like turbulence and more like a threat to your future standard of living. One way to iron volatility out of your plan is to implement a bucket strategy in the early years of retirement.

The bucket strategy works like this: a retiree establishes two savings buckets, one long-term and one short-term. The short-term bucket funds a retiree’s lifestyle and holds between two and four years of expenses, invested conservatively. The long-term bucket holds the rest of portfolio assets, but is invested more aggressively. In theory, the short-term bucket is protected from market volatility, while the long-term bucket captures market gains. Because the average recession has lasted four years or less, the short-term bucket funds retirement lifestyle while weathering any market downturns. A great option for creating a bucket strategy is by rolling over old retirement plans to IRAs, then investing accordingly.

Like long-term care and medical insurance, planning ahead for retirement spending can pay dividends down the road. Long-term care needs, health insurance expenses, market volatility. All of these things are outside of our control. By strategizing today, you can plan for these scenarios and ensure that they don’t adversely affect your retirement.

About to retire?  Here’s how to dig yourself out debt before you stop working.

Alert: highest cash back card we’ve seen now has 0% intro APR until 2023

If you’re using the wrong credit or debit card, it could be costing you serious money. Our expert loves this top pick, which features a 0% intro APR until 2023, an insane cash back rate of up to 5%, and all somehow for no annual fee. 

In fact, this card is so good that our expert even uses it personally. Click here to read our full review for free and apply in just 2 minutes. 

Read our free review

We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

The Motley Fool is a USA TODAY content partner offering financial news, analysis and commentary designed to help people take control of their financial lives. Its content is produced independently of USA TODAY.